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Wednesday, February 29, 2012

Dean Baker — Quick Thoughts on Modern Monetary Theory

Since there were many thoughtful comments on my earlier post, it seemed worth saying a bit more by way of response. As I noted at the onset, I did not see a difference between MMT and the Keynes that I first studied more than 30 years ago. I guess I still don’t see the difference.

15 comments:

"I would be hesitant to have a generic job guarantee. Having a large jobs program, especially for young people, makes sense in a downturn, but I don't know if I would consider it desirable in ordinary times. The idea is that it would put a floor on wages, since everyone would always have the option of taking advantage of a government job. But I worry that it would be hard to manage and monitor. We would not want it to be a dumping ground for people who don't feel like working and still getting a pay check. Ideally, there would not be a need for this sort of program most of the time, assuming that our macro policies are working reasonably well."

Baker: "assuming that our macro policies are working reasonably well."

Persistent running unemployment and therefore idling productive resources unnecessarily due to a policy choice is his idea of macro policies working reasonably well. Inefficiency that could be corrected by changing policy seems unreasonable to me. It is also ineffective wrt public purpose in providing for the general welfare. What is the criterion of "reasonable" here?

So few people seem to be able to conceive of a job guarantee that is anything other than a make-work program for deadbeats. They seem to imagine it as little different than the government sending all of the currently unemployed a weekly check, a certificate of employment, and a letter that says, "Congratulations, you now work for Uncle Sam."

I believe MMT defenders should take up the challenge of designing a national employment program that aims high and strives to employ everyone who wants to work in a high-calibre program that is more productive on average than the average private sector job. It should be called something like the "Citizens Corps of Public Enterprise and Development", and be something anyone would be proud to work for in the same way they are proud to be soldiers. It could be involved in infrastructure, education, and other aspects of human development and national capital development.

Although the program should accept anyone willing and able to work, including people who come in with poor skills and background, the aim should be to turn everyone who joins and who needs skills development into a competent, disciplined and motivated public servant.

And forget this business of not "interfering" with the private sector. The program should aim to give the private sector a run for it's money and compete aggressively for employees with quality work and a decent wage for its employees. A program like this would add to the private sector's incentives to provide good wages and work conditions in order to compete with the government alternative. This would be a huge shot in the arm on the side of America's workers.

@Dan It's very hard to think of a project X that is "more productive than the private sector" and should not be done by the private sector. That is, if you think of X, you should start a company to do X... and hire all those unemployed people at whatever wages you want to do it.

Of course, you can try to make some kind of "public goods" argument that X is really good but will not be done by the private sector... that's fine.

But I don't see the reason why a JG itself would be a public good. It seems you want to give the umemployed some money and move on. No need to make the government meddle in resource allocation any more than it needs to... who cares about output gaps? The Keynesians don't even have a structural idle resources model.

@Dan, I am tending to agree with your perspectives more and more. I am tired of coddling the private sector (aka, GOP Special Victims Unit). We handed them the reins 30 years ago, and we're still cleaning up the mess. But, but? What about the iPhone??? You mean all 6 of them that weren't purchased on unsustainable credit? I'm just not impressed anymore.

Baker's thoughts on monetary policy seem trivial. His justification -- "investment is relatively unresponsive to interest rates, but it is not altogether unresponsive". But he doesn't seem to realize that interest rates are ambiguous, since lower rates reduce injections of money into the economy. Nothing new here with regard to MMT. +1 MMT.

His remarks on "a lower valued dollar" are okay, but totally consistent with MMT, which he doesn't seem to realize.

The work sharing idea is fine, but also consistent with MMT. You shouldn't criticize MMT for not specifically endorsing every good policy option. MMT doesn't address everything!

But my bottom line is kudos to Mr. Baker for taking the time to consider MMT!

In one way or another, most private enterprise consists in the transformation of private property for the sake of private profit. The private sector firm takes some inputs which it already owns, and transforms them through work into something else, at least part of which can be sold for enough money to justify the cost of the transformative labor. Both the firm and its customers benefit.

But there are a whole lot of extremely valuable resources in this world which are not private property, and therefore there are no private sector owners with the incentive to do the transformative, value-adding work on those resources from which we would all benefit.

Yes, the unleashed private sector has now delivered historically long-lasting unemployment and historically high income differentials, with a large sector of our citizenry now moving backward economically. And private sector finance crashed and burned our whole economy, proving that if you give a license to kill to the hucksters, exploiters and flim-flam artists who always congregate in finance looking for the main chance, then a spree of serial financial killing is exactly what you'll get.

I like the private sector on the whole. It's creative and innovative, and bubbles up all kinds of ideas and entrepreneurial energy that the public sector can't generate. But the private sector can't do everything, and its shouldn't be governing the entire direction of our society the way it is now.

"Another benefit from more expansionary monetary policy is a decline in the value of the dollar,"

Where is he getting this? Japan has had 0 rates for 20 years and the Yen is on fire and cannot be stopped... US did 2T of QE and is higher today vs Euro than in 2008.... Baker does not understand the factors that effect FF currency pairs....

Then:"If the countries who were buying up dollar assets then decided that they had enough, so we could no longer rely on imports to meet half of our domestic demand,"

Rely? Oil aside (for now), like we are "relying" on them for their garbage "stuff". LOL!

Memo to Baker: The zealousness of these zombies is literally to the point where they are driving themselves to the point of jumping out of windows to obtain USD balances!

BS "rely". They can do us all a favor and keep their crap over there... so an ipad goes up $50, who cares?

Agree. This is something I thought about the other day wrt the MMR guys being overly concerned about the JG, and how the "private sector" does all the good things and we cant jeopardize that, blah blah, etc...

well if the private sector is all that, then people should strongly PREFER to work there and would be looking to get out of the JG as soon as they could.... what are we afraid of here???

I don't think Dean's any Kudos for it. He did a poor job of critiquing MMT and, over a period of time, since he first heard about he's been terribly lazy about acquiring any knowledge of it, and keeps saying he doesn't see the difference between between MMT and Keynesian economics presumable as practiced by people like Krugman and himself.

The only reason why he can't see the many differences is because he's not been reading the posts that spell out those differences.

Sorry to be sour about this, but I think that Dean is about marginalizing MMT very bit as much as John Carney is.